Need a Working Capital Loan?
Learn how a working capital loan works.
- Apply for a working capital loan with our easy and simple loan application
- A dedicated loan specialist will help you find the right financing option
- Quick decision, fast funding, and loan approvals in as little as 24 hours
What is a Working Capital Loan?
Working capital, aka operating capital, is the operating liquidity available to a small business. Being the lifeblood of any business, it describes a company's productivity and short-term financial performance. Cash flow is important to cover day-to-day operational needs like payroll, equipment, marketing, and any related expenses.
Working capital is calculated using this simple formula:
WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES
Positive working capital indicates a business is financially stable and fulfilling its debt obligations. Working capital is specifically important for businesses with seasonal or cyclical revenue to have healthy cash flow during the off-season. On the contrary, the business must also have adequate capital to cover operational needs during slower periods.
Getting a small business loan for working capital can be challenging from traditional lenders. These lenders typically have strict eligibility requirements and require collateral or personal guarantees for the loan. A working capital loan can help you make the needed investment in your business so you can cover your operating expenses.
Healthy cash flow not only helps you leverage new opportunities but also gives you the breathing space to make effective business decisions. At Merchant Advisors, we’ve been helping small business owners like you with fast working capital loans. if you’re searching for quick business funding, apply for a working capital loan today and get quick access to cash within 3-5 business days.
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What is Working Capital?
In technical terms, working capital is a sum left after subtracting current liabilities from current assets. On the other hand, in the layman language, working capital is often pronounced as an operational capital. Working capital of any business can give you an insight into the company’s financial standing.
Current Assets – Current Liabilities = Working Capital
Current Asset is an asset that turns into cash at the end of the coming fiscal year. Current liabilities cover any debt that an owner has to pay in the coming 12 months.
If your current assets are greater than the current liabilities, you have positive working capital. This means you can invest in as many future projects you want and increase the worth of your business.
On the other hand, if current liabilities are greater than the current assets, you have negative working capital. Apply for a working capital loan to fill the difference.
This loan can act as a temporary fix for your short-term financial instability. It provides excessive access to funds to cover inventory purchases, payroll, and daily financially dependent tasks.
Calculating the Required Amount of Working Capital
Before applying for a working capital loan, make sure you know how much capital you need. Usually, business owners look for enough money that will cover their daily operation costs, pay the existing debts, and can aid in covering the expenses of a new project. The question is how to calculate the required amount of working capital for your business. The required amount of working capital can be determined by calculating the working capital ratio: Working Capital Ratio = Current Assets / Current Liabilities
According to lending experts, the ideal value of working capital ratio lies between 1.2 and 2.0. If the working capital ratio is below 1.2, you need a working capital loan. Before applying for a capital loan, analyze your situation so you can move forward sensibly.
Types of Working Capital Loans
Below mentioned are the most common types of working capital loans suited for almost every kind of small business.
With a bank overdraft facility or credit line, you can borrow up to the maximum of a fixed amount. These can be secured and unsecured in nature. The major benefit of this working capital loan type is that you’ll only pay interest on the amount that has been overdrawn.
Short-term loans are secured loans with a fixed interest rate and payment period of typically 12 months. You can also get a short-term debt without collateral if you’ve a good credit history and working relationship with the lender
This type of working capital loan is an ideal solution for startups and usually obtained from personal resources, such as from friends or family and home equity loans (HELOC).
Accounts Receivable Financing is another type of working capital loans where a business sells its invoices or receivables to a factoring company. The lender directly collect invoices from your customers based on your behalf. The factoring companies usually lend this funding to established businesses. However, new businesses with a high volume of transactions may also secure this working capital loan.
If your business needs equipment upgrades or replacement, you can get an equipment loan or lease-financing product to keep your business running. When your business needs new equipment or simply upgrades, an equipment loan can help.
Trade creditors also provide working capital loans if you have an established history of timely payments. A trade credit facility will usually offered if you place bulk orders from them. Before approving you for capital, the trade creditor will thoroughly check your company’s credit history.
Benefits of Working Capital Loan
- Leverage business opportunities or handle challenges
- You retain the business ownership
- Collateral is not required
- Short-term ideal solution for short-term problems
- You can use the money as you see fit
- Fuel business growth by hiring new staff
- Purchase new inventory or products to drive more revenue
- Upgrade equipment and cover the maintenance or repairs costs
- Manage daily operations with cash flow gaps
- Manage business seamlessly during seasonal changes
Working Capital Loan from Merchant Advisors
Online lending platforms like Merchant Advisors offers quick access to working capital without the hassle of extensive paperwork with quick loan processing time. With our easy, online approval process, we review your business performance in real time to conclude the loan amount for which you qualify. We have the experience and knowledge in providing working capital loans, from bad credit business loans to receivable financing for every kind of small business.
Why Merchant Advisors?
At Merchant Advisors, we understand your unique needs and provide customized small business loans to keep your small business progressing.
- Experience in the Industry
Helping small business owners since 1997
- Trusted by Small Businesses
Billions in funding to thousands of businesses nationwide
- Personalized Financing
Customized financing solutions to small business needs
- Quick Application Process
No cost, no-obligation application with funding in 24 hours
- Your Personal Loan Experts
Experienced loan experts helping you succeed
- Save Time and Money
Let’s be your helping hand so you can focus on growing your small business